1. Developing a SACCO Supervisory Regime from the Ground Up
Africa Sacco Regulators’ Round table, Malawi
1st December, 2010
By Carilus Ademba
CEO, SASRA, Kenya

2. Presentation structure
Where SACCO Supervision?
Policy Incentive to Prudential Regulation of SACCOs?
The Journey towards Prudential Regulation

3. Cooperative Society Act
Saccos have operated under Cooperative Societies Act, (CSA) of the Laws of Kenya
A general legislation for all Cooperative Societies
CSA first enacted in 1966, amended in 1997 to give Management Committees of Sacco societies greater autonomy in running of Societies;
Further amendments in to respond to growing challenges with SACCOs

4. Cooperative Society Act
Being non prudential, the Act and the Rules thereunder stipulated such requirements as:
Registration requirements;
Annual audits and returns thereof;
Conduct of elections;
Approval of borrowing powers etc
Several amendments made to address uniqueness of Sacco societies

5. Need for Prudential Regulation
Need was recognized in CSA 2004, Section 91A that
“ The Minister shall in consultation with the apex society constitute by notice in the Gazette a body to regulate the operations of savings and credit co-operative societies.”
and
“The composition of the body constituted under subsection (1), its powers, duties and the terms of office of its members shall be as may be prescribed in the rules.”
Are subsidiary legislation and refers to a set of rules and standards issued by a supervisory authority with the aim of maintaining the integrity of the financial institutions. Are generally based on best practices and/or sound judgment in the specific sector.

6. Kenya Vision 2030: A people without a Vision Perish
A globally competitive and prosperous nation with a high quality of life by 2030

7. Kenya Vision 2030: A people without a Vision Perish
A globally competitive and prosperous nation with a high quality of life by 2030

8. Kenya Vision 2030
Gave new impetus to prudential regulation of Sacco societies given their significance in savings mobilization
Government aims to increase Gross National Savings to 32 of GDP
Are subsidiary legislation and refers to a set of rules and standards issued by a supervisory authority with the aim of maintaining the integrity of the financial institutions. Are generally based on best practices and/or sound judgment in the specific sector.

9. Vision for Financial Services Sector:
Kenya Vision 2030
Vision for Financial Services Sector:
“To create a vibrant and globally competitive financial services sector that will create jobs and also promote high levels of savings to finance Kenya’s overall investment needs.”
Are subsidiary legislation and refers to a set of rules and standards issued by a supervisory authority with the aim of maintaining the integrity of the financial institutions. Are generally based on best practices and/or sound judgment in the specific sector.

10. Vision 2030: Financial Sector dvpt Strategy
Based on three pillars:
Provide wider access to affordable financial services, including rural areas, thereby creating employment.
Enhance efficiency in the delivery of financial services to reduce cost of delivery.
Strengthen the stability of the financial system to reduce risk of financial crisis.

11. Vision 2030 - Financial Sector Reforms
Vision envisages the strengthening of alternative (described as “Formal others” in policy documents) financial service providers e.g. MFIs and SACCOs with specific strategies
Specific sub-sector strategies and programmes identified in the Sector plans
Key Sacco subsector reform programme identified as prudential regulation of Saccos

12. Vision 2030 - Financial Sector Reforms
SACCO subsector specific programmes:
Enactment of a Sacco specific law
Setting up a regulator for SACCOs through SACCO specific legislation;
Establish and Operationalize Sacco Societies Act, 2008

13. Vision 2030 - Financial Sector Reforms
Top level policy objectives in Sacco subsector being to:
Improve governance;
Protect member savings
Drive efficiency gains in the sector and reduce incidences of NPLs
Increase savings and credit in SACCOs – through increased membership

14. The Journey towards Prudential Regulations of SACCOs in Kenya
The SACCO SOCIETIES REGULATORY AUTHORITY

15. Journey towards prudential regulation
Laying the foundation
Developing the Sacco Societies Bill
Enactment of the Bill in to Law
Challenges in developing the law
Operationalization of the Sacco Societies Act, 2008
Reflections on the Regulations development

16. Journey towards SACCO Regulations Laying the foundation
2004:A Task Force comprising Ministry of Cooperatives, Sacco subsector representatives and other stakeholders is appointed
Views are collected culminating in a Stakeholders workshop in 2005
First Sacco Societies Bill is drafted in 2006 but does get to National Assembly

17. Journey towards SACCO Regulations Developing the Sacco Societies Bill
2007, 2nd and more inclusive task force appointed:
Commissioner for Cooperative Development (CCD)
Central Bank of Kenya (CBK)
State Law Office (Attorney General Office)
Kenya Union of Savings and Credit Cooperatives(KUSCCO)
Kenya Rural Sacco Societies Union (KERUSSU)

18. Journey towards SACCO Regulations Developing the Sacco Societies Bill
Mandate of the 2nd Task Force
Building on the work by the 1st Task Force
Draft a new Sacco Societies Bill for introduction to the National Assembly
The draft bill was ready by early 2008

19. Journey towards SACCO Regulations Developing the Sacco Societies Bill
Sacco Societies Bill 2008 redrafted
Part I: Preliminary
Part II: The Sacco Societies Regulatory Authority(SASRA)
Part III: Licensing of Sacco Societies
…….continued

20. Journey towards SACCO Regulations Developing the Sacco Societies Bill
Sacco Societies Bill 2008 redrafted
Part IV: Governance of Sacco Societies
Part V: Regulation and Supervision of Sacco Societies
Part VI: Deposit Guarantee Fund
Part VII: Miscellaneous

21. Journey towards SACCO Regulations Enactment of the Bill in to Law
Strategy is to lobby through:
Parliament’s Departmental Committee on Agriculture & Cooperatives in Parliament
Sitting members of parliament who formally served as Sacco leaders
Support of departmental committee crucial to success of a Bill

22. Journey towards SACCO Regulations Enactment of the Bill in to Law
Bill introduced to the National Assembly in August 2008
Debated and enacted in October 2008
Huge support in National assembly because Sacco societies are well known in Kenya
Became law in Dec 2008, - Sacco Societies Act, 2008

23. Journey towards SACCO Regulations
Challenges in developing the Sacco law
Resistance to change - Consensus building
Initial focus was on Front Office Service Activity (FOSAs)
Some provisions removed/amended

24. Journey towards SACCO Regulations
Operationalization of Sacco Societies Act, 2008
Acts of parliament are operationalized through regulations and/or rules
Required:
Development of the Regulations
Establishment of the Sacco Societies Regulatory Authority
Publication of the Regulations for by the Minister for Cooperative Dvpt and Marketing

25. Journey towards SACCO Regulations
Operationalization of Sacco Societies Act, 2008
In early 2009, the Minister appointed a Task Force (TF)
Principal deliverables of the TF:
Regulations to operationalize the Act;
Institutional design of the Regulatory Authority
Required staffing levels to kick off

26. Journey towards SACCO Regulations
Operationalization of Sacco Societies Act, 2008
Task Force (TF) comprised key stakeholders in the Sacco subsector:
Ministry of Cooperatives (Three Representatives)
Central Bank of Kenya
Treasury/Ministry of Finance
KUSCCO
KERUSSU
Cooperative Bank of Kenya
Chairman was Commissioner for Cooperative Development

27. Journey towards SACCO Regulations
Operationalization of Sacco Societies Act, 2008
Task Force sought support from:
Financial Sector Deepening Trust Kenya – Financial
WOCCU – Technical

28. Journey towards SACCO Regulations
Operationalization of Sacco Societies Act, 2008
In May/June 2009 the TF appointed two technical working committees namely:
Regulations technical working committee;
SASRA institutional design technical working committee

29. Journey towards SACCO Regulations
Operationalization of Sacco Societies Act, 2008
Scope of work and composition guided by documented Terms of Reference approved by the TF but:
Both committees comprises technical staff
Both committees worked with consultants for technical advise and best practices
Committees reported to the TF on their progress

30. Journey towards SACCO Regulations
Institutional design and establishment of SASRA
Technical committee focused on:
Organizational structure and establishment
Staff establishment and budget
Job description, competencies and training
Business process – policies and systems

31. Journey towards SACCO Regulations
Developing the Sacco Societies Regulations
Regulations Technical committee:
Guided by the Act, developed detailed operational and prudential regulations
Classified by the subject matter of law namely governance, credit, liquidity, licensing etc
Took about four months to have 1st draft

32. Journey towards SACCO Regulations
Developing the Sacco Societies Regulations
The Regulations at a glance:
Licensing
Capital adequacy
Shares, Savings and deposits
Liquidity/Asset and Liability Management
. ……Cont’d

33. Journey towards SACCO Regulations
Developing the Sacco Societies Regulations
5. Credit management
Risk asset classification and provisioning
Investments
Financial Performance Reporting
Governance of Sacco Societies

34. Journey towards SACCO Regulations
Developing the Sacco Societies Regulations
10. Information Preservation and Business Continuity
11. Regulation and Supervision
Deposit Guarantee Fund
Regulatory forms and reporting formats
Miscellaneous provisions

35. Journey towards SACCO Regulations
Stakeholder inclusion in developing Regulations
Specifically Sacco societies
Indirect involvement of Sacco societies:
Through inclusion of union
Direct involvement of Sacco societies:
Request for written comments on final draft
Stakeholder workshop

36. ….. and the Journey ended with….. Commencement of the Regulations

37. Journey towards SACCO Regulations
Challenges in developing the Regulations
Setting prudential ratios/standards on:
Capital adequacy
Loans classification
Loan loss provisions
Liquidity
Governance in Sacco societies

38. Journey towards SACCO Regulations
Challenges in developing the Regulations
Absence of credible data on financial performance of Sacco subsector;
Reporting frequency given poor ICT adoption in most Saccos
Transitional period for Saccos already deposit taking

39. Journey towards SACCO Regulations
Challenges in developing the Regulations
Influence of already existing Regulatory framework for Microfinance and Banks
Technical committee members were full time employees in their parent institutions
Time frame

40. Many thanks